Highly influential tech investor Marc Andreessen wonders whether people might be missing a big, important trend. In a recent interview, he said:
We have never lived in a time with the opportunity to put a computer in the pocket of 5 billion people. Practically everyone is going to have a general-purpose computer in their pocket. It's so easy to underestimate that. That has got to be the really, really big one.
We love to invest in companies poised to profit from big trends. And we completely agree with Andreessen about the rise of mobile computing. That's why we've decided to buy two new stocks for our 10-Bagger portfolio that will benefit from current trends in this area. Those two stocks are Apple (Nasdaq: AAPL ) and Google (Nasdaq: GOOG ) .
Crushing it in mobile
Are these two tech giants likely to be 10-baggers from here? No, that would be very unlikely. But we do think both companies have considerable upside ahead of them over the next five years. And while our primary mission is to find stocks with enormous upside potential, we don't intend to shy away from larger, outstanding businesses that have considerable growth prospects.
To get a better sense of the strength of these two businesses, let's consider the top three smartphone operating systems:
Global smartphone sales by operating system
Q4 2011 Units
Q4 2011 Market Share (%)
Q4 2010 Units
Q4 2010 Market Share (%)
Source: Gartner (February 2012). Units in thousands.
The message is simple. Google and Apple, whose operating systems are No. 1 and No. 2 on the list, respectively, just keep getting stronger and stronger. Does anyone really expect that to change anytime soon?
According to the same report, smartphone sales were 31.3% of all mobile devices sales in the fourth quarter of 2011, compared with 22.4% in year-ago quarter. So Google and Apple increased their shares of the spoils as more and more users switched from feature phones to smartphones. Apple and Google are not just following in the wake of a strong trend. They are driving it.
An embarrassment of riches
These two tech titans have almost 75% of the market share for smartphone operating systems -- and we expect that advantage to hold steady in the future. Apple delivers an unrivaled smartphone user experience, while Google offers a free operating system for device makers to use. It's not very easy to choose between each of those compelling strategies. So we've decided to invest in both.
Both Apple and Google, of course, have a lot more going for them than just the smartphone market. Apple almost singlehandedly created the tablet-computing market. The most recent data shows that Apple now has 68% of the market -- well ahead of Amazon.com (Nasdaq: AMZN ) , whose Kindle Fire had many people predicting it could upend the iPad's dominance. It currently comes in third with a 4% share.
Apple has no intention of letting these users leave its ecosystem. That's why it continues to add more and more content through applications, music, and videos. And now it even stores data for users in its iCloud. It's a terrific strategy for the long run.
Google bought the makers of the Android operating system because it presciently saw the handwriting on the wall: Someday, mobile computing will overtake desktop computing. Android helps Google understand, perhaps even control, this disruptive force. But we shouldn't forget that desktop search, which Google dominates with almost 80% of the global market, is still the cash cow. It provides the funds for Android, as well as products such as YouTube, Chrome, and Google Wallet, to name just a few.
We love the power of the smartphone trend, but we're also pretty excited about the other parts of their businesses too.
Staying ahead of the pack
Apple and Google can't rest on their laurels, however. It's still a very competitive world out there. Microsoft (Nasdaq: MSFT ) and Nokia (NYSE: NOK ) aren't going to roll over. Instead, they've teamed up to take a run at the leaders. Although this dynamic duo is starting from way back in the pack, we're keeping a close eye on them. The right combination of phone, operating system, and content could possibly make up ground in a hurry.
The 10-Bagger bottom line
We're looking to profit from trends in mobile, and right now, we've decided to place a bet on the leaders, Apple and Google. Not only are they both fantastic companies, but they are also reasonably priced, with lots of cash on their balance sheets. Best of all, both Apple and Google have an incredible history of delivering value for their shareholders.
It was interesting for us to hear Warren Buffett say that he'd be reluctant to invest in either Google or Apple, though he did concede that they might be "worth a lot of money 10 years from now." We admire Warren Buffett tremendously, but we think he's missing out on two fantastic investments. Apple and Google are incredible businesses that will deliver solid returns over the next five years and beyond. We fail to see what's so complicated about that.